Canada Isn’t Rotten to the Core: A Review of Thieves of Bay Street

Bruce Livesey’s Thieves of Bay Street initially caught my eye when a National Post writer claimed it “ought to be assigned reading for everybody who buys securities, borrows money or consults financial experts.” That was months ago. But a late offering of my two cents on the topic in my inaugural commentary as editor of IBJ seems reasonable enough since my name is listed in the book’s source note—and I don’t think it should be assigned reading for anyone.

As others have noted, Thieves of Bay Street doesn’t really cover new ground. Livesey simply compiles well-known marketplace horror stories, ranging from Bre-X to the asset-backed commercial paper (ABCP) market meltdown. Then he mixes these tales of business people behaving badly with touching victim stories, while claiming to uncover a cultural link to sensitive issues such as high mutual fund fees, executive pay levels, manufacturing woes and Canada’s lack of a national securities regulator.

Matt Taibbi got a lot of attention referring to Goldman Sachs in Rolling Stone as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” Livesey attempts something similar by focusing on the dark side of Canada’s business class. Indeed, his general thesis is that our economy doesn’t deserve the reputation for stability that it gained during the global financial crisis because ethical boardroom behaviour is the exception in this country and our regulators turn a blind eye to dodgy corporate accounting and financial scams. “As I began researching fraud on Bay Street and in the rest of Canada’s financial industry,” he writes, “I was constantly amazed by how many financiers would steal from clients, widows, friends and even their own families, without remorse. I saw how banks and investment houses manipulate the system so that once they control your money, it’s almost impossible to get it back—even if you’re blatantly robbed.”

Livesey concludes the Canadian financial industry no longer exists “to raise money to help companies grow and to enrich investors willing to risk money in those businesses. Instead, it has morphed into a wealth destroyer, a parasitic reaper of money from the middle and working classes, transferring it to the very people who run the financial industry and Canada’s wealthiest citizens.” What about other sectors? According to Thieves of Bay Street, Nortel’s demise was just “one more outbreak in a widespread epidemic of executives enriching themselves at the expense of investors and employees.”

How does this epidemic of thievery take place unchecked? “Modelled on the Family Compact, that sclerotic group of officials who dominated the legislative bodies, top bureaucratic positions and judiciary of Upper Canada as an incestuous pseudo-aristocracy up until the 1840s—today’s establishment coalesces in clubby fiefdoms in Halifax, Montreal, Toronto, Winnipeg, Calgary and Vancouver, where they live and work together, protecting each other’s interests.” As result, Livesey reports Canadian consumers are perpetually “f—ked” while our Wild West economy ensures international investors steer clear.

Good story. Just not true. I’ve never been robbed by a broker. Last time I checked, my bank card still worked. And as noted earlier this year by Linda Nazareth, a senior fellow at the Macdonald-Laurier Institute, Canada is still a favoured place for foreign investment. In a ranking of Foreign Direct Investment (FDI) destinations globally, she notes our nation was 10th in the world last year. In total, $45.4 billion came into Canada in 2012, up almost 10 per cent from 2011, while FDI plunged 37 per cent in the United States and tanked 78 per cent in the European Union. Even China saw a 24 per cent dip in FDI last year.

When it comes to the dark side of capitalism, I am far from naïve. Years ago, I killed a potentially lucrative career as a venture capitalist by raising a stink over what appeared to be a bear raid on Canada’s Open Text by a Scandinavian firm that employed me as global head of investor relations. After a related stock manipulation lawsuit was covered up by an out-of-court settlement, I exposed the affair in a magazine feature. Since then, I have made a journalism career out of reporting on unethical and criminal market behaviour. I won an award for writing about how unprofessional Canadian brokers pushed risky ABCP investments on conservative retail investors. I uncovered an international boiler room operation that fleeced seniors on behalf of Canadian firms in need of capital, including the local retailer of Ben & Jerry’s ice cream. I have written about how regulators should do a better job. As for bankers, I once noted CIBC appears to stand for Can’t Imagine Being Competent. What I have never written about, of course, is a nation-wide conspiracy by Canadian elites to rob the poor and middle classes, because such a beast doesn’t exist.

Livesey and I obviously see the business world in a different light. According to his blog, he thinks markets would function better if executives didn’t control workplaces and politicians were not in charge of economic policy. “If I work for a company,” he says, “I want to own a share in it, decide what it produces and how the profits are distributed, and determine who my bosses are and what they do with the enterprise and how much money they make. And I want a political apparatus that ensures control over the economy by working people.” For the record, I strongly disagree. But despite our philosophic differences, Livesey and I share an obligation to objectively put things in perspective. And Thieves of Bay Street doesn’t do this.

Livesey blames the financial community for the downfall of Stelco. But the company’s fate actually stems from a dysfunctional relationship between workers and management that dates back to a violent strike in 1946, which included naval and air battles between the forces of labour and capital. Livesey notes directors at Magna International paid a ridiculous amount to founder Frank Stronach in order to create a single share structure. But he fails to mention the move was not stopped by regulators because it was supported by a majority of Magna shareholders, who all greatly benefited financially from the deal.

Furthermore, any fair examination of Canadian capitalism would at least try to educate readers about the never-ending balancing act politicians must perform as they struggle to regulate markets as effectively as possible without stifling the economic growth that puts food on all our tables. It would also note that Canadian investors would still need to better understand risks if we had a national watchdog like the U.S. Securities and Exchange Commission. Simply put, markets are not always consumer-friendly, which is why the principle of caveat emptor exists. But Livesey glosses over the need for consumers to better understand business cycles and investment risks. Instead, he expresses outrage over the fact that people have lost money that they can’t afford to lose investing in mutual funds. With all due respect to anyone who has lost money in equities, you don’t need to be an investigative reporter to know mutual funds are not recommended for folks interested in 100 per cent capital protection.

This issue of IBJ presents an interview with BCE boss George Cope, who is just one of many Canadian business people worthy of respect. We also offer a commentary by economist Bill Witherell, who explains why investors shouldn’t write off the American economy despite fiscal mismanagement in Washington. Witherell notes fund managers pay close attention to the annual “Doing Business” ranking of the World Bank and International Finance Corporation (IFC), which compares regulations in 189 countries. While the latest edition gives Canada relatively low grades in many areas, ranging from dealing with construction permits to enforcing contracts and registering property, our nation actually ranks fourth (higher than the U.S.) when it comes to protecting investors. You wouldn’t know that from reading Thieves of Bay Street.

Attacking capitalism and globalization is fair game, but it is pointless to try to draw a cultural link between Canadian instances of financial fraud, accounting games, high mutual fund fees, union woes and the decline of manufacturing—unless, of course, the point is pandering to the Occupy crowd by tossing ethical business folks under the bus. Our country certainly has its fair share of issues. But Prime Minister Stephen Harper (who also has a fair share of issues) wasn’t wrong when he pointed out to a gathering of Ivey students recently that pretty much every other leader of a developed nation would probably welcome having to deal with Canada’s problems instead of their own.